A currency trader gathered the following information about Canada (CAD), the UK (GBP) and Germany (EUR): GBP/EUR

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A currency trader gathered the following information about Canada (CAD), the UK (GBP) and Germany (EUR):

GBP/EUR (units of GBP to buy 1 EUR) = 0.8504

CAD/EUR (units of CAD to buy 1 EUR) = 1.4975

GBP/EUR 1-year futures = 0.8563

Risk-free rate in Canada = 4%

Risk-free rate in Germany = 3%

(a) What is the risk-free interest rate prevailing in the UK?

(b) What is the CAD/GBP 1-year futures?

How would you undertake this arbitrage assuming that you are not allowed to invest in the UK T-Bills market? Show all details for a loan of one million.

Related Book For answer-question

Managerial Accounting

ISBN: 978-0133428377

4th edition

Authors: Karen W. Braun, Wendy M. Tietz

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Posted Date: Apr 05, 2023 01:30 AM

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A currency trader gathered the following information about Canada (CAD), the UK (GBP) and Germany (EUR): GBP/EUR

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a To determine the riskfree interest rate prevailing in the UK we can use the interest rate parity I... View the full answer

Managerial Accounting

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